The rich, the poor and the middle pay a lot of tax

The rich, the poor and the middle pay a lot of tax

April 16, 2012 6:14 PM

There are some very misleading headlines around today in response to HMRC income tax receipts data which the Government has released to support its capping of unlimited reliefs. The Metro reports that it shows "multi-millionaires hand over less than cleaners" as 6 per cent of those earning more than £10 million a year paid less than that in tax, and asks: "The richest pay how much tax?" The answer to that question is: "a lot".

Using HMRC data, we've replicated a graph produced in the United States by the blog Political Math. It shows just how much the rich are paying, and how it is a much larger share of total income taxes than their income, the rich certainly aren't paying less than the cleaners.

Some people on high incomes do pay less than you would expect in a given year, sometimes even very low figures like under 10 per cent of their income, but that's because of specific reliefs, including those the Government is planning to cap. Unfortunately some of these reliefs exist to avoid very ugly results. Limiting them, as another sticking plaster applied to the existing tax system, will end badly.

Two are particularly important: loss relief and relief on charitable contributions. Lots of charities have been telling us about the consequences if tax relief for charitable contributions is abolished. Loss relief is important too.

Suppose you make a £15 million loss one year, then enjoy a £15 million income the next year. How much have you made overall? £0. If you get full loss relief then you will be taxed on that basis and pay nothing, as you have no income to pay from. If your loss relief is capped at 25 per cent of your income, as the Government seems to be proposing, then you presumably have to pay tax on over £10 million. From an income of £0. Good luck.

The rich do pay a lot of income tax, the graph shows that clearly enough. That doesn't mean those on low and middle incomes don't as well, though. Consumption taxes like VAT and alcohol and tobacco duties hit the poor harder, as a share of their income, and make up for the fact they don't pay much income tax. The middle class are somewhere in between.

Everyone is paying a fortune in tax. It still isn't enough and the Government is running a huge deficit. Cuts in spending are needed to fix the public finances and so that everyone can keep a little more of their money in their own pockets, to spend supporting their own families and their own causes.There are some very misleading headlines around today in response to HMRC income tax receipts data which the Government has released to support its capping of unlimited reliefs. The Metro reports that it shows "multi-millionaires hand over less than cleaners" as 6 per cent of those earning more than £10 million a year paid less than that in tax, and asks: "The richest pay how much tax?" The answer to that question is: "a lot".

Using HMRC data, we've replicated a graph produced in the United States by the blog Political Math. It shows just how much the rich are paying, and how it is a much larger share of total income taxes than their income, the rich certainly aren't paying less than the cleaners.

Some people on high incomes do pay less than you would expect in a given year, sometimes even very low figures like under 10 per cent of their income, but that's because of specific reliefs, including those the Government is planning to cap. Unfortunately some of these reliefs exist to avoid very ugly results. Limiting them, as another sticking plaster applied to the existing tax system, will end badly.

Two are particularly important: loss relief and relief on charitable contributions. Lots of charities have been telling us about the consequences if tax relief for charitable contributions is abolished. Loss relief is important too.

Suppose you make a £15 million loss one year, then enjoy a £15 million income the next year. How much have you made overall? £0. If you get full loss relief then you will be taxed on that basis and pay nothing, as you have no income to pay from. If your loss relief is capped at 25 per cent of your income, as the Government seems to be proposing, then you presumably have to pay tax on over £10 million. From an income of £0. Good luck.

The rich do pay a lot of income tax, the graph shows that clearly enough. That doesn't mean those on low and middle incomes don't as well, though. Consumption taxes like VAT and alcohol and tobacco duties hit the poor harder, as a share of their income, and make up for the fact they don't pay much income tax. The middle class are somewhere in between.

Everyone is paying a fortune in tax. It still isn't enough and the Government is running a huge deficit. Cuts in spending are needed to fix the public finances and so that everyone can keep a little more of their money in their own pockets, to spend supporting their own families and their own causes.

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Welcome to The TaxPayers' Alliance, Britain's grassroots campaigning group dedicated to reforming taxes, cutting spending and protecting taxpayers. If you like what we do, become a supporter now by signing up to our mailing list using the form below. John O'Connell, Chief Executive